2022 (11) TMI 984 - AT - IBC

Tribunal Stays CoC Formation; CEO to Manage Payments Amid Indian Bank's Intervention in Corporate Debtor Case.

Ashok Kumar Tyagi Versus UCO Bank, Mr. Santanu Brahma

The NCLT issued an interim order staying the formation of the CoC, thereby suspending the IRP's duties. Indian Bank's intervention was permitted, ... Difficulty in functioning of Corporate Debtor - Consequence and effect of the Order dated 07.11.2022 - whether the Corporate Debtor is entitled to be restored and be permitted to function as it was functioning prior to 28.10.2022? - HELD THAT:- The issue is no longer res integra. Hon’ble Supreme Court has occasion to consider the effect and consequence of an Interim Order passed by a Court in Shree Chamundi Mopeds Ltd. Vs. Church of South India Trust Association [1992 (4) TMI 183 - SUPREME COURT] where it was held that While considering the effect of an interim order staying the operation of the order under challenge, a distinction has to be made between quashing of an order and stay of operation of an order Quashing of an order result in the restoration of the position as it stood on the date of the passing of the order which has been quashed. The stay of operation of an order does not, however, lead to such a result. It only means that the order which has been stayed would not be operative from the date of the passing of the stay order and it does not mean that the said order has been wiped out from existence. This means that if an order passed by the Appellate Authority is quashed and the matter is remanded, the result would be that the appeal which had been disposed of by the said order of the Appellate Authority would be restored and it can be said to be pending before the Appellate Authority after the quashing of the order of the Appellate Authority. The question which needs to be considered in this Application is that how the day-to-day functioning of the Tea Gardens may be carried on when IRP is not entitled to discharge any function and the Corporate Debtor also cannot be restored as it was functioning prior to 28.10.2022. There are wages to be paid to the workers, Ration is also to be distributed by the Company to its workers, there are electricity dues and some other necessary expenses. The workers of the Corporate Debtor and its functioning can not be made to suffer in the facts of the present case - for the purposes of payment of wages to the workers and distribution of ration, payment of electricity dues and other necessary expenses, ways and means have to be found out so that Corporate Debtor may continue as a going concern - In the facts of the present case, we are of the view that difficulties in running the corporate debtor as a going concern, can be mitigated by directing the Chief Executive Officer (CEO)/Officers of the Corporate Debtor authorized to operate the Bank Accounts are permitted to make payment of wages of workers, workmen and employees as was being paid earlier to passing of the order dated 28.10.2022. The payment of Electricity Dues and other necessary expenses may also be carried out by the officials as mentioned above subject to submitting all details of expenditure on weekly basis to the IRP as well as to the Suspended Managing Director of the Corporate Debtor. Application allowed. Issues Involved:1. Challenge to the Order dated 28/10/2022 admitting Section 7 Application filed by UCO Bank.2. Interim Order staying the formation of Committee of Creditors (CoC).3. Role and actions of the Interim Resolution Professional (IRP).4. Intervention by Indian Bank.5. Management and operational control of the Corporate Debtor during the stay period.6. Payment of wages and necessary expenses for the Corporate Debtor's ongoing operations.7. Settlement proposals with UCO Bank and its implications.Issue-wise Detailed Analysis:1. Challenge to the Order dated 28/10/2022 admitting Section 7 Application filed by UCO Bank:The appeal was filed by the Suspended Director of the Corporate Debtor challenging the National Company Law Tribunal (NCLT), Kolkata Bench's order admitting the Section 7 Application filed by UCO Bank. The appeal was initially taken up on 04/11/2022, and an interim order was passed directing the IRP not to constitute the CoC.2. Interim Order staying the formation of Committee of Creditors (CoC):On 07/11/2022, the Tribunal reiterated its interim order, staying the formation of the CoC and allowing Indian Bank to file an Intervention Application. The interim order also stayed the impugned order until the next hearing date, scheduled for 10/01/2023.3. Role and actions of the Interim Resolution Professional (IRP):The IRP filed an application seeking clarification on whether he should continue to act as the IRP and take steps to keep the Corporate Debtor as a going concern. The Tribunal clarified that the IRP could not carry out any functions since the order appointing him was stayed. Thus, the IRP was not entitled to discharge any function after the interim order dated 07/11/2022.4. Intervention by Indian Bank:Indian Bank filed an application to intervene in the appeal, citing that the Corporate Debtor owed it dues of more than Rs. 85 Crores and that any settlement with UCO Bank should also consider Indian Bank's dues. The Tribunal allowed Indian Bank's intervention application.5. Management and operational control of the Corporate Debtor during the stay period:The Tribunal faced the issue of how the Corporate Debtor's operations, especially the Tea Gardens, could continue when the IRP could not function, and the Corporate Debtor could not be restored to its pre-28/10/2022 status. The Tribunal decided that the CEO or authorized officers of the Corporate Debtor could make payments for wages, electricity dues, and other necessary expenses, subject to weekly reporting to the IRP and the Suspended Managing Director.6. Payment of wages and necessary expenses for the Corporate Debtor's ongoing operations:The Tribunal acknowledged the necessity of continuing payments for wages, ration, electricity, and other expenses to prevent disruption in the Corporate Debtor's operations. It permitted the CEO or authorized officers to manage these payments, ensuring that the Corporate Debtor could continue as a going concern.7. Settlement proposals with UCO Bank and its implications:The Tribunal noted that any settlement by the Suspended Directors of the Corporate Debtor with UCO Bank would require the Tribunal's leave. This was to ensure that any settlement did not adversely affect the interests of other creditors, such as Indian Bank.Conclusion:The Tribunal issued specific directions to ensure the Corporate Debtor's operations could continue without the IRP's involvement, maintaining the status quo until the next hearing. The Tribunal allowed Indian Bank's intervention and emphasized that any settlement with UCO Bank would need its approval. The appeal was scheduled for further hearing on 10/01/2023.